Kanika Bahadur & Jesper Behr, SAP - Core Banking Transformation

Core Banking Transformation

The Grange Tower Bridge, London, June 18-20, 2012Jesper Behr, Kanika Bahadur - SAP

http://www.tacook.de/english/index.php

© 2012 SAP AG. All rights reserved. 3

Agenda

Why Core Banking Transformations

What makes Core Banking Transformations Different

Best Practices in Managing Core Banking Transformations

Value Management in Core Banking

Value Management Approach

Example of Business Case Development: Differentiated Products


Reasons For Core Banking Transformation

Customer Centricity in a Multi-Channel Environment

Market Flexibility & Compliance Adaption

Cost & Complexity Take Out

Banking specific trends… …implemented in existing IT landscapes


When Is “Doing nothing“ No Longer An Option?

The tipping point – when is it time to transform? Risk/cost of “Doing nothing” is higher than the transformation

risk/cost There is no real “me too” effect Changed business strategy with new business requirements

– Move towards a customer-centric approach– Transaction factory approach


Agenda








The Challenges of Core Banking Transformation

Understand the products and make a decision regarding migration

Ever changing legal & regulatory requirements

Understand the processes (in detail)…..

BusinessComplexity

… and how they connect to the systems (in detail)

Integration with channel systems

Changing the periodic processing (Batch)

Testing the new Bank End-to-End

ITComplexity

The last 25 years: Ongoing legacy improvements

The business organization: Benchmarked and optimized to Run the Bank

The IT: Skills to Run the bank, not Change the Bank

R(evolution)

One language for hundreds of experts

Communication overhead

Duration of 3-5 years

Scope


Different Alternatives Getting There


Enhance vintage system Fix and extend current vintage systems

Best-of-breed replacement Replace systems over time with best of breed components keeping main processes

Complete Transformation Replace key core systems and transform processes with a modern IT architecture

?


Agenda








Core Banking Transformation Best Practices

Value Based Transformation Roadmap

• Align roadmap with business strategy to gain quick benefits• Deliver functionality in a phased approach

Program Governance • Clear governance structure with executive mgmt. involvement• Involve key stake holders (vendor, system integrator, ..)

Solution Architecture Framework• Align solution architecture with transformation roadmap• Define strong governance processes

Core Banking Solution• Build or buy• Modular and flexible core banking solution• Vendor credibility with core banking transformation track record

Implementation Methodology• Use proven core banking transformation methodology• Adapt to agile methodologies


Value-Based Transformation Roadmap

Key principles

Phased approach

Roadmap driven by business strategy

Prioritization based on value as well as feasibility

Quick wins to show progress and fund future phases

Value based on both tangible and strategic benefits,

derived from past case examples

TodayDuration Milestone

Customer Information

Saving Accounts

Personal Loans

Mortgages

Current Accounts

Year 1 Year 3Year 2

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4


The Transformation Should Be Based On The Business Strategy

Revenue Growth Focus Efficiency Focus Best-of-breed approach

Scope includes some change in all end to end systems - presentation, distribution & manufacturing layers

Scope primarily manufacturing layer focus. One integrated systems to serve all customers across multiple countries

• Centralised customer model to enable continued business value delivery

• Distribution layer changes required to reflect Manufacturing agility & new end-to-end processes

• Launch of growth products separated from “mop up” migration

• Migrate customers and products according to value

• Less channel, down-stream & orchestration required

• Focus on product & process number reductions (reducing product set processes) to reduce cost

• Centralised operations for all business lines to enhance synergies

• One clear goal: Achieve full consistency of processes, information and control across all seven operating countries

• Leverage best practise processes and standard functionality to reduce future TCO.

• Focus on critical requirements and avoid “nice-to-have” features


Program Governance

Executive top management involvement Align with key stake holders such as solution vendors

and system integrators Define stake holder meetings, escalation paths and

executive sponsorships early in the process Define clear responsibilities of the involved parties All should act as one team

Lev

el 3

:P

roje

ct

Man

agem

en

t

Lev

el 4

Pro

cess

Te

ams

and

Wor

k S

tre

ams

Loans Managemen

t

…othersDepositManagemen

t

CollateralManagemen

t

Accounting for

Financial Instr.

Program & Project

Management, PMO

Design Review Board

Board of Architects

Risk & Finance

Quality Management

Executive Steering

Committee

ExecutiveProject Sponsor

Lev

el

2:

ES

C

Lev

el

1:

Spo

nso

r

Test Management

Integration Management

Technical Infrastructure, Basis, Performance Optimization

Data Migration


Application Target Architecture Framework

Use industry accepted architecture frameworks such as BIAN, TOGAF

Define target architectures aligned with the transformation roadmap– Business Architectures– Information Systems Architecture– Technology Architecture

Establish architecture governance structures


Core Banking Solution

Build or buy Selection process best practices

– Focus on future state than current– Avoid excess detailed analysiso Limit the number of vendors earlyo Proof-of-concept instead of RFI/RFP

Selection criteria beyond functionality– Functional process coverage– Solution design (modular, bank-in-box)– Flexibility– Vendor credibility– Support & maintenance offering


Implementation Methodology

Follow a pre-define and proven methodology fit to purpose– Core banking transformations are differento Requirement analysis / re-engineeringo Integration effortso System architecture

The methodology should integrate all aspects of core banking transformation

Structured involvement of business from the very beginning Use agile methodology instead of waterfall method Organize the project in small interdisciplinary teams with full

responsibility of delivering work packages

Joint Analysis and Design Team Lead


The Total Effort of Core Banking Transformations Consist of Discrete Layers

Program related effort

System integration

Requirements gathering (Blueprint) SAP to SAP Integration Product related

CDP (SAP Custom Development Project) Configuration (Build)

Unit Testing

Organizational change management Vintage system adaption costs System de-commissioning Training Roll out Infrastructure

Vintage System Integration Environment Integration Testing services Migration services CoE (Center of Excellence)/ Operations Process monitoring

SAP Implementation


Agenda








How Do Leading Companies Realize Value?

Improving Management

Practices*

Investing in IT Investing in IT while Improving Management

Practices

2%

* Key performance improvements i.e. Lean Manufacturing, Performance Mgmt., Six Sigma.Source: “When It Lifts Productivity”, The McKinsey Quarterly, 2004 Number 4

%Im

prov

ed P

rodu

ctiv

ity

20%

Incr

ease

d V

alue

Joint IT and Business Driven Initiatives

IT and Business Units Disconnected

2XMoreValue

Leading companies combine business process improvement and information technology initiatives to drive higher, more sustainable business value

8%


Today’s Executive Agenda is About Value as much as Risk and Efficiency

How to rapidly align technology with business strategy?

How to best leverage scarce capital resources?

How to best mitigate business risk?

How to ensure realization of the expected value?

Today’s Business Transformation programs – on time, on budget and on value


Are we investing in the right initiatives?

Are we realizing the full value potential of these

investments?

How do we enforce benefit commitments

with the same passion that we drive budget

commitments?

What governance, practices and

competencies are required to ensure

benefits are achieved?

True Value Management has not been widely adopted in organizations

Building a Business Case

Realizing Value

Measuring Value

0% 100%

0% 100%

0% 100%

17%

20%

5%

Source: SAP Value Engineering analysis of 1,609 completed business case engagements

Only 17% of organizations require formal business

cases

Only 20% of organizations measure value post go-

live

Only 5% of organizations had detailed plans to

realize value from their investments

When it comes to Business Transformations only 20% of organizations achieve expected value

Key questions


Value Lifecycle

Effective Value Management Maintains Focus on Business Outcomes Through the “Value Lifecycle”

Extracting value from transformation initiatives requires a consistent and rigorous focus on business value across functional, divisional, and time dimensions. The business case is the driver of change and provides the baseline for measurement and realization.

Value Discovery “Build the Case”

How well are we performing today?

What will make us better?

Are we willing to do something about it?

Value Optimization “Drive more Value”

How do we scale the value based approach across our portfolio?

How do we make Value Management a part of our organization’s DNA?

Value Realization “Realize the Value”

How do we execute the recommended changes?

How do we measure progress?

How do we get the right visibility & accountability?

Diagnose business process performance

Build and validate the business case and roadmap

Align with CEO / Board agenda

Define KPI’s to track

Identify and manage risk

Design governance model

Measure performance

Identify improvement actions

Leverage best practices


Agenda



Best Practices in Managing Core Banking Transformations – SAP ASAP Methodology

Case Example – CBA, etc.





Typical Value-based Transformation Roadmap Approach

Understand the business and IT strategy and operational goals: Business objectives and priorities Strategic initiatives planned and in implementation Current pain points, risks and existing limitations Current application landscape and key implications for the SAP project

via external and internal data, interviews with key business, operations and IT Executives

Assess how the strategic goals and current pain points can be addressed by SAP Solutions

Build a Board level business case that supports the key strategic and operational priorities of the bank Evaluate baseline (costs, FTEs, operational KPIs) for all the functional blocks within scope Estimate high level benefits for each of the functional blocks Prioritize each functional block based on benefits and feasibility Build a value-based roadmap Estimate high level costs of the implementation Develop a consolidated business case

Conduct executive briefings to validate the business case and the roadmap

1

2

3

4

The value-based transformation roadmap, serving both current and future business requirements, should be based on business and IT benefits and feasibility


Build a Value Roadmap in Partnership with SAP

Phase 3

Phase 2

Phase 1

Feasibility

Val

ue

High

High

Payments

Mortgages

Online Banking

Deposits

Business Analytics

Customer Billing (Out of scope area)

Mobile Banking

(£ X-Y M p.a.)

(£ X-Y M p.a.)

Mobility Platform for Sales Enablement

(£ X-Y M p.a.)

(£ X-Y M p.a.)

(£ X-Y M p.a.)

Loans

(£ X-Y M p.a.)

(£ X-Y M p.a.)

(£ X-Y M p.a.)

Successful implementation of an overall vision requires attention to the Value of each architectural component in cooperation with the Feasibility (dependencies, risk, skills and capacity constraints required for execution)

ILLU

STRATIV

E


Characteristics of a Great Business Case

Why?

What?

How?

What are the strategic priorities?

What challenges prevent us from achieving them?

What is the scope of what we are trying to achieve?

What is the recommended solution & associated benefits and cost?

How should we estimate benefits and costs?

How do we prioritize initiatives to build a high-level roadmap?

What other similar case studies can we reference? Is our approach achievable?

Proof

Key Questions Addressed


Gross cash flow

Business

IT

Ongoing Effects

The Business Case Has To Consider All IT and Business Benefits and Costs

+

+

+

+

Typical Quantitative Benefits

One-time Effects

One-time Effects

Improved business productivity from harmonization (via automation, process streamlining, shared services or reduced demand) and improved compliance

+Ongoing Effects

+

+Improved revenues from differentiated products (improved time to market, customer-centric innovative products and pricing, cross-sell, up-sell, new acquisition)

+ Net savings from avoided business projects no longer required

Improved IT staff productivity and reduced external spend from harmonization ( via competency centres and skill pooling, reduced need for operations, maintenance and integration)

Savings from consolidating the IT platform (ongoing license costs, associated infrastructure costs of retired applications)

Implementation costs of single platform (including system integration)

Internal and External resources - Project Management, Design, Build required functionality (customization, interfaces)

Additional license costs and infrastructure

Training and change management

Migration

Net savings from avoided IT projects no longer required

+

+

+

-


Agenda



Best Practices in Managing Core Banking Transformations – SAP ASAP Methodology

Case Example – CBA, etc.





SAP can help Banks Launch Differentiated Products with Customer centric product bundling, pricing and complex features

Wish List1. Product definition without

Programming2. Flexible definition of fees

and charges3. Customer oriented pricing4. Easy to define ‘Campaign

offers’5. Product packages

SAP Solution Enablers Advanced Product Configurators

New products and conditions without any programming effort

Flexible segmentation pricing through differentiation categories

Product bundling Customer-oriented pricing through Master Contract

Management Package combining different products such as deposits,

securities and cards


Differentiated products (1/2)Key challenges and solution enablers

Pain Points Solution enablers

System Multiple product systems (deposit, loan, collateral etc.) with multiple terms and conditions, duplicated features, islands of functionality

Single product system

Wide range of banking products currently supported

Product definition

Inability to respond quickly to future, unforeseen changes in requirements and market conditions. Requires new transaction types, new features, new terms and conditions (own innovation as well as replicating market-leading products quickly)

Time to market is too long and cost of deploying new products too high

Flexible product configuration tools

Development, testing and deployment of complex products without programming effort

External rule definitions to define products, pricing and bundling, which can be restricted to certain customer segments or channels

Offer multi-branding and white-labelling

Respond to evolving banking regulations

Pricing and charging

Lack of flexibility to price products and define product arrangements based on individual, commercial or retail customer requirements

Takes too long to make pricing changes based on competitive and other external pressures

Ability to price products based on customer value


Differentiated products (2/2)Key challenges and solution enablers

Pain Points Solutions enablers

Bundling Inability to re-use existing products Creation of new product required Inability to support complex products (ex: complex

loan) Inability to easily sell and service product

bundles and price based on total bundle

Ability to provide groupings based on customer requirements In future Customer-initiated product bundling – premier

customers given a menu of product and service options to mix-and-match to create own bundles

Offering Inability to provide products by customer groups Inability to acquire new customers, retain existing

customers and look for ways to increase product penetration rates all at the same time

Ability to define product arrangements by customer type e.g., flexibility to comply with complex rules for sweeping of funds externally and internally to meet the needs of large corporates, ability to define flexible terms and conditions of loans

Reporting Inability to provide a 360 degree view of customer by product holdings, inability to provide accurate reporting on profitability of products and product bundles

Advanced analytics and reporting Reporting by product bundle as well as a drill-down into

individual components


Differentiated Products: Examples of Tangible Value

SAP Deposits Management SAP Loans Management SAP Financial Database SAP Bank Analyzer

SAP FootprintCompany Benefits achieved

Reduced time to market of new products from several months to a couple of weeks

End to end product creation

Fewer products, more features = more choice (from 16 to 9 retail products)

Staff saving product linked to customer satisfaction score

Rapid product introduction through test launches in controlled release areas

SAP Deposits Management SAP Loans Management SAP Collateral Management

SAP Deposits Management SAP Loans Management SAP Collateral Management SAP ERP

Reduced time to launch new products, from 6 months to 2 months

Cash pooling services implemented in 1,5 months


Differentiated Products : Tangible Benefits

•Assumptions:

Value Source Baseline Improvement % Benefit

Increased revenues through improved time to market €M1 40-50% € M

Incremental revenues from products not currently available (e.g., offset mortgages, multi-currency loans, 3rd party products bundled with own, etc)

€ M2 100% € M

Increase in new customer acquisition due to improved pricing, customer-initiated product bundling

€ M3 2-3% € M

Reduced customer churn due to improved pricing € M4 10-15% € M

Increased cross selling due to improved pricing and product flexibility

€ M5 10-25% € M

Improved productivity of new product development staff € M6 60-80% € M

Improved productivity of product maintenance staff (IT plus business)

€ M7 60-80% € M

Reduced cost of training new sales and service staff due to streamlined product catalogues ( no duplication) and simplified user interfaces

€ M8 30-40% € M

Reduced cost of monitoring product features and conditions e.g., low activity on mandatory current account associated with a low-cost credit card

€ M9 20-30% € M

Retrieve lost revenue on products with violated conditions due to better monitoring

€ M10 5-10% € M

Total One-Time Impact € X- Y M

Total Annual Impact € X- Y M

Thank youContact information:

Jesper BehrSolution Management – Transactional BankingSAP [email protected]+49 171 308 52 08

Kanika BahadurBusiness Development Banking EMEASAP [email protected]+44 780 857 57 39

Questions & Feedback Tweet #SAPBanking

www.blogs.sap/banking @SAPforBanking